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Is Microsoft Corporation's "One Windows" Dream Dead?

Two years ago, Microsoft(NASDAQ: MSFT) CEO Satya Nadella presented his vision for a "One Windows" ecosystem, declaring that the Windows PC, Windows Phone, and Xbox platforms would be combined into a "single converged operating system for screens of all sizes."

Image source: Microsoft.

On paper, that strategy seemed sound. Microsoft would get all three platforms on the same page with a universal app store for Windows 10 and stream Xbox One games to Windows 10 PCs, and Continuum would convert smartphones into PCs. Data gathered by Bing and Cortana would be synced across all those devices. To accelerate the process, Microsoft offered Windows 10 as a year-long free upgrade for Windows 7 and Windows 8 users.

Unfortunately, that plan didn't quite pan out. By the time Microsoft ended the free upgrade in late July, only about a fifth of PC users were using Windows 10. Nearly half still used Windows 7. Xbox One sales continued lagging behind PS4 sales by a wide margin, throttling the appeal of streaming games to Windows 10. The flagship Lumia 950 and 950 XL phones, which were intended to introduce Continuum to the world, flopped.

By July, Microsoft admitted that it wouldn't achieve its goal of installing Windows 10 on a billion devices by mid-2018. Do these missteps indicate that the "One Windows" dream is dead? Let's look at what went wrong with Microsoft's plan to find out.

What went wrong with "One Windows"

Microsoft's biggest mistake was overestimating the appeal of a unified OS. Users now mainly use apps that run across various mobile platforms and PCs, and that data is stored in the cloud instead of on a local device. This means that the value of the operating system fades as people use more cross-platform apps, and that an average Windows PC user with an Android phone doesn't need a Windows 10 phone to run the same apps.

The Lumia 950. Image source: Microsoft.

That's why Apple(NASDAQ: AAPL) hasn't rushed to merge iOS and OS X. Merging a mobile OS with a PC one creates the awkward hybrid experience between tiles and traditional desktops seen in Windows 8 and 10. That's probably why most PC users are sticking with Windows 7, the last "mobile free" version of the OS.

Another problem was that Windows 10 Mobile devices didn't really convert into full PCs with Continuum. Users could only install Windows Store apps designed for ARM(NASDAQ: ARMH)-based mobile processors. This meant that users couldn't just download any piece of Windows software -- which was most likely made for x86 processors -- and install it. This also limited the appeal of Continuum among enterprise customers, which usually rely on older software. This strategy completely ignored the success of the Surface Pro devices, which were well-received because they let companies run x86 software in both laptop and tablet modes.

Lastly, connecting a smartphone to a $99 Display Dock, a keyboard, mouse, and monitor simply made a smartphone-based Continuum PC a clunkier, pricier, and weaker alternative to a regular laptop. If users mainly use cloud-based apps that can be accessible on Windows, iOS, Android, or the web, there simply wasn't a compelling reason to buy a Windows 10 Mobile device.

The last Hail Mary play

With Windows Phone accounting for less than 1% of the worldwide smartphone market, there's not much Microsoft can do to expand its "One Windows" ecosystem to mobile devices beyond launching its own iOS and Android apps. Major app developers will continue shunning the platform in favor of iOS and Android, and the remaining Windows Phone users will eventually abandon the platform due to its lack of software support.

The one play Microsoft has left is the long-rumored Surface Phone, which could replace the Lumia 950 as its flagship mobile device by the end of the year. The reasoning seems to be that since the Surface Pro and Surface Book devices sold fairly well, a Surface-branded phone might sell better than a Lumia-branded one.

However, the Surface Pro and Book sold well because they were x86-powered PCs. Rumors indicate that the Surface Phone will be an ARM-powered device, which means that it will face the same problems with Continuum as the Lumia 950, regardless of its branding.

It's time to give up on "One Windows"

"One Windows" was a bold attempt to change Microsoft's entire business model, but it's unlikely that Microsoft can reclaim a meaningful slice of the mobile market from iOS and Android. Without gaining ground there and luring back app developers, it's likely that Windows 10 will remain restricted to the PC and Xbox One markets.

Nadella previously noted that we now live in a "mobile first, cloud first world." But in this world, people need cross-platform apps, not unified operating systems for all their devices. Therefore, I believe it's time for Microsoft to give up on the "One Windows" dream and focus on infiltrating iOS and Android with its first-party apps.

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Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool owns shares of Microsoft and has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.